Taxable company in Indonesia or otherwise known as PKP is frequently mistaken by entrepreneurs in Indonesia. Many entrepreneurs mistakenly register as a taxable company even though their operations do not need it. Entrepreneurs must know that in Indonesia, not all companies must become taxable. Companies can become non-taxable companies depending on their business operations.
Thus, it is imperative to know what defines a taxable company and a non-taxable company. Non-taxable companies are mostly startups or micro-sized companies with annual revenue of less than IDR 4.8 billion. As a non-taxable company, the company can enjoy a lower tax obligation. The taxes will only apply to their sales of goods or services.
Taxable Company (PKP)
A taxable company (PKP) in Indonesia is a company that produces electronic billings to pay for its taxes. Usually, companies that produce electronic billings have business partnerships with the government or large corporations. According to the Indonesian tax department, companies with annual revenue of IDR 4.8 billion must register as taxable companies. Regardless of whether the company is dealing with government projects or not.
To define a taxable company is to understand the functions. Any selling and exports of taxable goods or services will allow the company to become a taxable company. Although the definition of taxable goods and services may be slightly obscure, it is easier for entrepreneurs to determine their need for a taxable company through their annual revenue. As a taxable company, companies need to pay a value-added tax (VAT) of 11%.
Nonetheless, the difference between a taxable and non-taxable company relies on the tax calculation. As a taxable company, the company will have to pay 11% of the total profit that the company makes. This means that the cost of goods sold is deducted from the revenue to generate profit. The profit will be the source of VAT.
Said calculation is in contrast with a non-taxable company that is required to pay tax from their revenue. For instance, a service company that generates a revenue of IDR 3 Billion per year will have to pay an income tax of 0.5% of the revenue. It doesn’t matter if the expenses of the company are high or if the company isn’t making any profit. They must pay the income tax based on the revenue they receive.
Benefits and Why?
The benefits of becoming a taxable company are not as lucrative to all sorts of companies. As mentioned above, the rate of VAT is far higher than that of income tax. However, to some companies, becoming a taxable company is non-negotiable. This is especially true for companies with an annual revenue beyond IDR 4.8 billion and those companies in partnerships with Government.
Furthermore, taxable companies also allow companies to join tenders for Government projects. Plus, a taxable company is one of the income generators for the government. Therefore, it’s only natural for them to require taxable companies for their project tenders.
Another benefit that companies can get from becoming taxable companies is the ability to have business deals with large corporates. Usually, these large corporates have large revenues that automatically puts them in the taxable company category. Thus, any companies working together with them must also become taxable companies.
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